Accounting Theory

Abstract
It is fairly easy for a top executive to reduce the price of his or her company's stock. Due to information asymmetry. The executive can accelerate accounting of expected expenses, delay accounting of expected revenue, engage in off balance sheet transactions to make the company's profitability appear temporarily poorer, or simply promote and report severely conservative estimates of future earnings. And this phenomenon of accounting scandal exist in contemporary society. The integrity of the accounting profession and the credibility of financial information provided by businesses have been undermined by scandals. Accounting and business education should pay more attention to the ethical to prevent accounting scandals. And they should not be focused on the teaching of accounting techniques. Neoliberal ideology is a political movement beginning in the 1960s that blends traditional liberal concerns for social justice with an emphasis on economic growth. And it is similar to globalization. Globalization includes three elements that are difficult decreasing, quick response to alterations, and multilateral trade liberalization. And accounting professional contains individual professional judgment and professional self-regulation. Globalisation brings many benefits but also a number of problems, for instance, low price labour used by multinationals that Increasing wages for highly-skilled workers and reducing wages for less-skilled workers obviously leads to greater inequality. Neoliberalism has also been unable to address growing levels of global inequality. In order to better focus on ethical education, accountants should consider ethical issues in various directions. And they should understand the requirements of students’ future employer, and how to guide students into a true ethical notion.

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Introduction
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...Accounting theory without a doubt, has transformed rapidly throughout the years due to changes in society, environment, globalization, and the expansion of various industries, which ties in with the needs for new accounting standards. However, some basic aspects remain the same, for example, the double entry system.
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...CGA-CANADA ACCOUNTING THEORY & CONTEMPORARY ISSUES [AT1] EXAMINATION March 2009 Time: 3 Hours
Note:
All references to the Handbook refer to the CICA Handbook.
Marks
28
Question 1 Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if the best answer for item (a) is (1), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations. Note:
2 marks each
a.
Which of the following statements applies to the efficient contracting version of positive accounting theory? 1) Earnings management is not necessarily unethical. 2) Firms should design managerial compensation contracts with a high proportion of compensation based on net income. 3) Debt contracts typically contain covenants based on accounting variables. 4) Financial reporting should not be conservative.
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DIFF. BETWEEN BOOK KEEPING AND ACCOUNTING
BOOK KEEPING
ACCOUNTING
1. It is a Process concerned with recording of transaction. 2. It is the basic of accounting.
1. It is a process concerned with Summarizing of the recorded transaction. 2. It is the basic for business language. for accounting are
3. Person......

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Question 2
What is F score?
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Read more: http://www.businessinsider.com/the-piotroski-f-score-a-fundamental-screen-for-value-stocks-2011-6#ixzz3AoPMcBXM
Calculation / Definition of F-Score
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A. Profitability Signals
1. Net Income – Score 1 if there is positive net income in the current year
2. Operating Cash Flow – Score 1 if there is positive cashflow from operations in the current year.
3. Return on Assets – Score 1 if the ROA is higher in the current period compared to the previous......

...These questions are from the Text Book – Scott, W.R., Financial Accounting Theory – 5th Edition, Person Prentice-Hall, 2009. ISBN: 978-0-13-207286-1.
Question 1: From Chapter 4 (Efficient Securities Markets) Question 13.
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Introduction
Accounting is a subject that is guided with principles and regulations. Thus, it is often regarded as a rigid, rigorous, and highly analytical discipline with very precise interpretations. However, this is far from the truth. For instance, two organizations that are otherwise homogeneous can apply different valuation methods giving entirely distinct but equally correct answers. One may argue that a choice between accounting schemes is merely an “accounting construct” the sorts of “games” accountants play that are exclusively of relevance to them but have no pertinent in the “real world.” Once again this is entirely false. For example, valuation of inventory using either LIFO (Last-in-last-out) or FIFO (First-in-first-out) has an impact on income tax, especially in the US. Therefore an accounting construct possesses an essential “social reality” i.e. the amount of income tax that is paid. Income tax payments are not the only social reality that accounting numbers affect. Income numbers also influence dividend payments, price of a firm’s stock, the cost of capital as well as salaries and bonuses since it can be used as an instrument in evaluating the performance of management. Considering that accounting statistics can have significant......

...BAC 3684: ACCOUNTING THEORY
LECTURER’S NAME: PROF PREM LAL JOSHI
GROUP MEMBER’S
STUDENT | STUDENT ID |
DARREN TEH WE LOON | 1102702654 |
CHEE YEN MUN | 1102700429 |
CHANDRAPRIYA D/O GOPALACHANDRAN | 1101110492 |
GAYATHIRY ULAKANATHAN | 1101110649 |
a) In your opinion, why do standard setters require measurement methods other than traditional historical cost accounting?
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...earnings management techniques)? You are required, and must, read and incorporate academic journal articles and other relevant materials to justify your viewpoint.
INTRODUCTION
Accounting can be broadly defined as the ‘measurement and communication’ of economic information to the decision makers (Watts and Zimmerman 1986). Accounting is divided into internal and external accounting on the basis of the users of the information (Spohr 2005). Spohr (2005) further highlights that the responsibility for preparing the external accounting information and publishing it lies with the managers of the firm. These managers rely on their inside knowledge of the firm’s current state to provide an accurate and fair picture of the financial state of the firm. The existence of accounting regulations and guidelines aims to improve the relevance and accuracy of the financial reports.
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...From Sheet of Accounting Theory
Difficulties in Segment Reporting
* Base of Segmentation: in case of complex business, it’s difficult to select a base for organization as well as difficult to compare.
* Allocation of Common Costs: Common costs are likely to be allocated, bringing segment information into question
* Pricing Inter-segment Transaction: No specific method for inter-segment pricing, different method use for cost, cost plus market price and negotiable price.
* Costs of Segment Disclosure: Increased competition may result segmental disclosures where profitable segment may attract competitors, & loss making segment arise the take over situation. Foreign companies are not required to provide segmental reports.
* Management Conservatism: Management determination of segments implies that what is useful to management is useful to investors.
FASB’s 5 possible objective for interim reporting:
1. To estimate annual earnings
2. To make projections
3. To identify turning points
4. To evaluate Management Performance
5. To supplement the annual Report.
Problems in Interim Reporting
* Accounting Problems:
* Inventory Problems: There are three types of problems;
* Determination of Inventory quantities
* Valuation of inventories
* Adjustment of valuation
* Matching principle: Business operations are not similar throughout the year. Resources are acquired & output may be sold & there are......

...
FORMULATION OF ACCOUNTING THEORY: PURPOSE AND APPROACHES
A TERM PAPER (2)
ON
ADVANCED ACCOUNTING THEORY (ACC 821)
PRESENTED BY
EKERIA, Victor
IKYUME, Chiahemba James
OGBOLE, Philip Osemudiamen
SUBMITTED TO
PROFESSOR A.E. OKOYE
DEPARTMENT OF ACCOUNTING
COLLEGE OF BUSINESS AND MANAGEMEN SUDIES
IGBINEDION UNIVERSITY, OKADA
MARCH, 2015
Abstract
As tasks of accounting became more difficult and focus shifted to users’ needs, a theory became necessary. Existence of a need for information for decision making (decision usefulness) in face of information asymmetry led to development of means, tools and techniques for satisfying decision making needs (formulation of accounting theories)
This paper briefly discusses the purpose/importance for accounting theory and various approaches to the formulation of an accounting theory under two headings, namely: (1) traditional approaches, and (2) new approaches. The paper finally highlights the critiques of the accounting theory approaches
Table of Content
1.0.0. Introduction……………………………………………………………………………… 1
2.0.0. Meaning of Accounting Theory………………………………………………………… 2
2.1.0. Needs and Purpose for Accounting Theory…………………………………………….. 3
3.0.0. Early Attempts at Accounting Theory……………………………………………………...3
4.0.0. Approaches to the for Formulation of Accounting Theory……………………………….5
4.1.0. 4.1.0. The Traditional Approaches………………………………………………………..5
4.1.1. Non – Theoretical, Practical, or Pragmatic (Informal)......

...ACC307 – Accounting Theory
Assignment
Name: Chun Ho Hui
Student ID: na20150418
Case Study 1
Questions
1. Explain why principles-based standards require a conceptual framework.
A: Conceptual framework can be defined as “an attempt to define the nature and purpose of accounting” (Team, 2015).
Conceptual framework is essential for principle-based standards because it lays out a fundamental structure for principles-based standards. Setting the standard on and relate to an established body of concepts and objectives, enable FASB and IASB to “issue more useful and consistent standards over time” (Essays, 2013). For any future developments or armaments on the standards, the framework will ensure the changes will be within its fundamental concepts and will not get to a personal or an inconsistent standard.
ACCA has mentioned “the availability of a conceptual framework could lead to ‘principles-based’ system whereby accounting standards are developed from an agreed conceptual basis with specific objectives” (Team, 2015), which in other words, a consistency on the principle-based standards and agreed on a common ground.
Without a sound conceptual framework, principle-based standards could lead to inconsistency for users internally (accounting practitioners) and externally (report readers); bias on the use of standards and standard settings, which leads to misdirection on financial statements; and the difficulty of future developments on the standard itself (not been...

...How would critical theorists assess research based on the Positive Accounting Theory?
Accounting researchers tend to accept current accounting systems. Rather than focusing on why accounting systems favour certain classes of society, research is mainly carried out to such things as what accounting methods are most appropriate in certain circumstances, what motivates managers to use one accounting method over another and disclosure. By looking at accounting with a critical perspective is to recognise the way in which people are in control of capital. The Positive Accounting Theory (PAT) and Legitimacy Theory can be analysed critically for their bias approach of a political and economic perspective disregarding those people without wealth.
A critical perspective of accounting is a perspective that critically evaluates the role of accounting in society. It does not consider issues such as what accounting methods should be used in which situations and often views accounting as a major contributor to perceived social problems and inequalities (Deegan, 2001).
Critical theorists are those that ignore the whole world of accounting, favouring the interests of those people with wealth of power. However, they focus on the problems in and of society, not debate which methods of accounting should be employed.
Accounting to Watts & Zimmerman (1990, page 7) Positive Accounting Theory is concerned with explaining accounting practice. It is designed to explain and predict which firms......

...1. Introduction
Accounting practices have been argued to reflect information quality of the firm in the market. Recently, there has been renewed interest in the relation between information asymmetry and conservative financial reporting practices. Many theorists have critiqued this aspect of information asymmetry, which has garnered significant interest in the accounting arena in the world today. This paper is set out to analyze the literature on conservative financial reporting, dissecting Akerlof’s article surrounding information asymmetry. Following this, possible motivations by firms to undertake these accounting measures will be meted out, coupled with an examination of the empirical evidence in reflection of the measurement of conservatism, with a final conclusion pertaining the relationship of information quality and financial reporting choices being ascertained.
2. Conservative Financial Reporting
Conservatism is the differential verifiability required for the recognition of accounting gains versus losses that generates an understatement of net assets. (Basu, 1997) There has been evidence strongly suggesting that U.S companies had used conservative financial reporting practices since the last five decades. (Watts, 2003) It is argued that conservatism of financial reporting arises because of information asymmetry between firm managers and shareholders. While information asymmetry refers to a situation where one party has more or superior information compared to......